The International Monetary Fund (IMF) said in its report on the World Economic Outlook for 2022 that the global economy entered this year in a weaker position than previously expected, with the spread of the new omicron variant, as some countries re-imposed restrictions.
The report added that higher energy prices and supply disruptions led to higher and broader inflation than expected, particularly in the United States and many emerging market and developing economies, noting that the ongoing contraction in China’s real estate sector and the slower-than-expected recovery of private consumption also have limited growth prospects.
In China, turmoil caused by the pandemic related to the zero-tolerance policy of coronavirus and extended financial pressures among real estate developers lowered the rating by 0.8 percentage points. Global growth is expected to slow to 3.8% in 2023. Although this is 0.2% higher than previous forecasts.
The IMF said that high inflation is expected to continue for longer than projected in the October World Economic Outlook, with continued supply chain disruptions and energy prices continuing to rise in 2022 and assuming that inflation expectations remain well anchored, it should gradually decline as supply and demand imbalances fade in 2022 and monetary policy in major economies responds.
The fund noted that as advanced economies raise monetary policy rates, risks to financial stability and capital flows in emerging market and developing economies, currencies, and financial positions may emerge – particularly with debt levels rising dramatically in the past two years. Other global risks may crystallize as geopolitical tensions remain high, and the ongoing climate emergency means that the potential for major natural disasters remains high.
With the pandemic still under control, the fund said, the focus on an effective global health strategy is more prominent than ever, noting that worldwide access to vaccines, tests and treatments has become essential to reduce the risk of infection with more dangerous variants of COVID-19. “This requires increased production of supplies, as well as better in-country delivery systems and fairer international distribution.”
The fund said that monetary policy in many countries will need to continue on a narrow path to reduce inflation pressures, while fiscal policy – operating in a more limited space than it was earlier in the pandemic – will need to prioritize healthy spending and social support, focusing on the most vulnerable.
In this context, it noted that international cooperation will be essential to maintain access to liquidity and expedite the restructuring of structured debt when needed, while investing in climate policies remains essential to reduce the risks of catastrophic climate change.